Good day ladies and gentlemen and welcome to the fourth quarter 2008 Ashland earnings conference call. My name is [Tawanda] and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to Mr. Eric Boni, Director of Investor Relations. Please proceed sir.

Thank you Tawanda. Good morning and welcome to Ashland’s fourth quarter fiscal 2008 conference call and webcast. We released our fourth quarter results at 7:00 am Eastern Daylight Time today. These results are preliminary until we file our 10-K in November. Our speakers with me here today are Jim O’Brien, Ashland’s Chairman and Chief Executive Officer and Lamar Chambers, Senior Vice President and CFO. Please turn to Slide 2 for our cautionary language regarding forward-looking statements. Statements may be made during the course of this presentation that constitute forward-looking statements as that term is defined in relevant securities laws. Ashland believes its expectations regarding its operating performance and the Hercules transaction are based on reasonable assumptions, but it cannot assure that those expectations will be achieved. Therefore, any forward-looking statements may prove to be inaccurate. On Slide 3 you will also see the mandatory additional information we must provide in connection with the proposed acquisition of Hercules. Please turn to Slide 4. Before we get started, I will give you an outline of the call. First, I will review Ashland’s overall fourth quarter results and our progress on cost structure initiatives and Lamar will get into the specifics of our businesses. Jim will then discuss our 2008 full year highlights and conclude our prepared remarks with an update on the Hercules transaction. After that, we will take your questions. We can take a look at the fourth quarter highlights on Slide 5. We experienced a difficult fourth quarter as our guidance indicated in our last quarterly earnings call in July. You will remember that back at the time of the call, the focus of much of the chemical industry was on implementing a large number of price increases, many in the range of 20 to 30 percent driven by significant…

Thank you Eric and good morning. Let me start with Ashland Performance Materials. As you can see on Slide 15, a number of key items affected quarterly operating income comparisons for this segment. As we continue through the presentation you’ll see this chart for each of our business segments before we get into their results. Ashland Performance Materials reported operating income of $1.6 million in the September 2008 quarter, a decline of $5.6 million versus a year ago quarter. However, severance costs had a $4.7 million negative impact on Performance Materials operating income in the 2008 quarter as compared with a net unfavorable impact of $6.7 million from all key items in the prior year quarter. Thus, all other income representing the underlying performance of the business totaled $6.3 million for the fourth quarter 2008 as compared with $13.9 million a year earlier. Now let’s move to Slide 16 which summarizes Performance Materials quarterly results. As shown here, Performance Materials sales and operating revenue of $427 million declined 3% versus the September 2008 while volume per day increased 8%. However, both volume and revenue comparisons were affected by a number of factors; an extra month of non-North American business in 2007, volume gain from the acquisition of a line of business from Air Products in 2008, the transfer of certain sales to Water Technologies, and currency translation. Excluding the effects of these factors, revenue increased 3% over the September 2007 quarter, largely due to price increases and volume per day decreased 6%, largely the result of weakness in North American and European markets. Gross profit as a percent of sales declined by 380 basis points and nearly 300 basis points sequentially, due largely to the time lag in recovering cost increases; volume reductions; and the impact of the lower margin…

Do we have any questions?

(Operator Instructions) Your first question comes from Mike Sison – Keybanc. Mike Sison – Keybanc: Give us a feel for – if you think about the Ashland businesses on its own and think about the current economic backdrop and potential for [low] raw materials, sort of what the potential you see in the separate businesses heading into ’09 and 2010 assuming let’s say Hercules wasn’t on the table? Just to get a feel what the potential is for the base business at this point in time. James J. O’Brien: As far as the potential for raw material decreases, obviously Ashland Distribution’s done a very good job moving through the pricing increases and as prices will come down, they will have to react to that in the marketplace as well. Performance Materials I think will benefit the greatest, because they’ve had the most difficulty in getting the pricing through because of the difficult demand structure that that business has experienced over the last 18 months. So I think Performance Materials captured about 55% of the raw materials increases that we had the last quarter. So hopefully as prices come down, we can get back to more normal margins and as we talked about in the call, we’re also restructuring the cost structure of that business. We took significant cost cuts this last quarter as well as taking capacity out to bring our utilization rates up. So as this business becomes smaller due to the size of the market, hopefully it will be able to retain a level of profitability that will create a return. So that’s going to be beneficial. Valvoline had a very good series of price increases where they passed through all the costs of the lube stock that went up during the quarter. Now as lube stocks potentially…

We’re still very committed to the Hercules transaction and we can’t speculate on what issues may arise that would cause any type of change to that. All I can tell you at this time is we continue to negotiate with our banks to finalize the financing, and that is one of the final conditions that has to be met before we can close. So the financial markets as you know are difficult, the banks continue to be committed to the transaction, but we’re still in the throes of negotiating the final terms. Mike Sison – Keybanc: Then in terms of the recent backdrop of the economic environment and you think about Hercules going forward, any changes to what might have been, what you thought could be the potential I guess earnings creation from July to now concerning things are a little bit more difficult in the economic environment?

Well certainly the economic environment will impact not only our businesses but Hercules businesses. When you look at the strategic reasons why we went forward, they have not changed. We still like their more consistent cash flows. I think they have positions in certain markets which although they’re going to be impacted by a total worldwide economic slowdown I think are less sensitive than some of the markets that we participate in. So I think as far as imbalance it gives a much more stable earnings picture for us. And I think also it gives as I stated in our discussion here, there are significant cost reductions that can be made to improve our cost structure with the two combined companies. So when you take all those things together I think the two companies together, in spite of the economic slowdown that we’re facing will be stronger as combined units.

Your next question comes from Jeff Zekauskas – J.P. Morgan. Jeff Zekauskas – J.P. Morgan: At the beginning of the presentation, you said that you thought your interest costs for the transaction might be up a couple of hundred basis points from where you originally forecast. Can you remind me where you originally forecast or what do you think the average cost of debt for Hercules is now going to be?

I’ll have Lamar answer that question. Go ahead Lamar.

Yes. Thank you Jim. We originally indicated that we thought our all in blended interest costs would be in the range of 7.25 to 8.25% across all the tranches of debt and debt assumed. As we said earlier in the comments we’re now looking at a couple percentage points above that as the likely scenario. Jeff Zekauskas – J.P. Morgan: So that means 9.25 to 10.25?

That’s correct. Jeff Zekauskas – J.P. Morgan: So you said that you’re in negotiations with the bank. I mean, these are really substantially above what you expected before.

Of course we as part of our commitments with the bank we also have flex built in to the rates and the structure of the transaction and that’s what we’re working with the banks now to finalize is exactly how that structure looks and how the flex is managed through the closing. So this is in line with our expectations around what these rates could get to. Jeff Zekauskas – J.P. Morgan: So all things being equal, unless you’ve really changed your depreciation assumptions, this is now a very dilutive transaction. Is that the way you see it? Or do you see it as accretive or slightly dilutive? How do you see it next year?

From a reported GAAP earnings basis I think we indicated when we announced the transaction, we did expect it to be modestly dilutive in the first year, substantially accretive on a cash earnings basis excluding the effects of the purchase accounting write ups on depreciation and so forth. Even in year one we expect it to be accretive on the cash earnings basis. So that’s still our expectation. Clearly the higher interest costs put additional burden on the earnings as well as the economic environment. We’re looking at that as we move forward here. But this is well within our expectations of the economics of the transaction as far as the way we’ve stress tested it against the economic and escrow scenarios.

Jeff also keep in mind, too, you’ll remember our initial base case on synergies was $50 million and about 60% of that on a run rate basis in year one. We’re now forecasting $120 million in synergies and $80 million on a run rate basis in that first year. Jeff Zekauskas – J.P. Morgan: The other half of this transaction is that your own stock is trading or your own EBITDA is trading at I don’t know 2.3 times. So is there sort of a gradual – is there a reassessment or some sort of analysis of the pluses and the minuses of this transaction, especially in response to the stiff financing environment? Or are you going great guns to get it completed? I mean is there any interest rate or any set of circumstances that might give you pause?

Well certainly the external environment has us concerned and we have run several cases to make sure that the interest rate that is being discussed here can be accomplished. And if you look at the transaction, it’s – we’re still very focused on completing the transaction because it’s as I stated the same strategic financial reasons [previously] stated. And importantly to sit there and to speculate what some of the issues you raise is really inconsistent with our obligations under the merger agreement. So from that standpoint, it’s really something that concerns us but it doesn’t really impact our decision. Jeff Zekauskas – J.P. Morgan: What’s your capital expenditure expectations for the combined entities next year?

We’re looking at a capital expenditure that’s pretty broad ranged at this point, depending on how the economic environment shakes out but we’re looking at CapEx at maybe as low as $200 million for the combined entity and as high up to $300 million. We’re certainly entering the year with a cautious mindset and looking at deferring certain projects until we get more clarity under the economic environment. So our expectation going into the year would be in that $200 to $300 million range.

And Jeff I think probably we’d be best to assume that we’re going to be at the lower end of that range, because obviously without knowing how bad the economy’s going to get and all the issues around cash flow, we are going to have a very, very stringent program this year to conserve as much cash flow as possible. And probably only do the projects that are absolutely necessary. Jeff Zekauskas – J.P. Morgan: Yes. I think even getting below the bottom end of the range might be something at least to contemplate.

Yes I think that you’re right. We’re looking at a very, very skinny program this year with all the things that we’re going to be facing in the company. Jeff Zekauskas – J.P. Morgan: Have you seen much change in base oil prices?

There’s been now one announced price decrease of about $0.30 and that one probably won’t be felt for several weeks. But with the – the problem with lube stock today, it’s still tight as far as it’s unit volume. So the pricing I think is naturally because of where crude is it’s going to be downward but there hasn’t been any significant announcements. But certainly there is anticipation. Jeff Zekauskas – J.P. Morgan: So Valvoline on a sequential basis really came down quite a lot. Is this the 13 sort of a run rate level of earnings for Valvoline or –

What we said in the call is – Jeff Zekauskas – J.P. Morgan: Forgive me.

That’s okay. It came down substantially because of the way the raw material prices came through and our ability to pass them through. If you recall, going back probably 18 months it was a very similar situation where they had sizable increases. It took about a quarter to get them passed through all the various segments of the market. And then you come out the next quarter fully recovered and you recover back to the margin you had. And what we said on the call is the margins will be reflective of more what you saw in the first eight months versus the last quarter. So again Valvoline recovers very quickly from the price increases. The market is much more defined and there’s fewer segments to move the price through. So it recovers fairly quickly. So our anticipation for next quarter is fairly optimistic in spite of obviously some tightening of demand because of people driving less.

Your next question comes from Dmitry Silversteyn – Longbow Research. Dmitry Silversteyn – Longbow Research: First of all I was curious to hear you listing marine market as one of the reasons for the weakness in your businesses. From other companies that participated in the market, my understanding was that the third quarter was still pretty decent for marine. Can you give us a little bit more detail of maybe it’s the segment that you play in or a particular part on the supply chain going into the marine market, but can you give us a little bit more information on what’s going on there?

Sure. It’s probably the way we define marine. We talk about marine in the context of our Performance Materials business and not marine in the sense of moving goods across the seas. If you look at our Drew Marine business it did quite well. So you’re right there that if you’re actually in the business of transportation, it’s still doing well. What we were describing is the marine business we have through Performance on our composites, where it’s recreational boat is the reference that we made with that portion of the marine market. Dmitry Silversteyn – Longbow Research: So that’s an economically sensitive segment I would imagine.

Yes, very much so. I mean obviously it’s the consumer and it’s what do they have as far as excess reserves that they have to divide leisure type products and those are being hit quite hard. Dmitry Silversteyn – Longbow Research: Secondly you talked a lot about the transformation you tried to achieve in Water Technologies and how Hercules hopefully with their Paper Technologies business will help that. As you go through kind of your redefinition of the business model and reach another business model in taking out some service perhaps or doing some other things to simplify the cost structure, what’s the confinitive environment is like? What are the other players in the industry are doing? Are you facing something specific to Ashland when it comes to the cost structure and the service component? Or is this an industry wide move to kind of simplify or to reduce the service component given that the customers don’t seem particularly willing to pay for it?

When you take a look at the broader industry, I think that Ashland is probably a close follower here as far as what we’re trying to accomplish through our restructuring. Many of the – our competitors have been through this already and we’re trying to get on the same basis of competitiveness. So I don’t think that we’re leading a new way of serving the customers. I think this is something that customers are pretty much driving and demanding as far as how they’re receiving our services and our products and how they want to be served. So from that standpoint I think we’re consistent with the market. The consolidation between Ashland and Hercules in this area is to help us with scale and I think also broader management structure over the business. So I think that as a combined company, what we’ll bring forward I think are some management skills and opportunities to manage the business differently but what we’re trying to accomplish here in the near term is have the business at least positioned so it’s no worse than as far as its cost structure and its pricing opportunities than the competitive set. And that’s the work we’ve been doing over the last several months, really over the last 18 months. Dmitry Silversteyn – Longbow Research: So it sounds like it’s a high probability that you’ll get there in terms of getting this transformation done without much of a market impact in terms of share loss or anything like that.

That’s our anticipation, but nothing’s assured. But certainly the way we’re kind of structuring how we’re going to go to market and the changes we’ve made to the business, I think we’ve given ourselves the highest opportunity to have the least disruption as possible. Dmitry Silversteyn – Longbow Research: I’m not that familiar with the business but the Valvoline business when you had a decline in the do-it-for-me market of high single digits and I believe you had a 6 or 7% growth in the do-it-yourself portion of the business, is this something that’s been going on for a while and just kind of a market transformation where people are more cost conscious or maybe have gotten a little bit better at changing their own oil? Or is this something specific about the quarter or the season that resulted in declining do-it-for-me revenues and higher do-it-yourself revenues?

What you’re seeing there is the continuation of a trend. The do-it-yourself has been declining really for the last ten years, so you’re right there that this is a trend that’s been going on for some time. And what you saw in the quarter is the DIY customer who is a little more economic sensitive than the do-it-for-me side. And at the same time our balance of oil change and I think the how we go to market is different than our competitors. And our business model is being well received by the consumer. So it’s a combination of the DIFM is slightly less sensitive than the DIY but we’re I think we’re performing very, very well there and probably outperforming the market, whereas in DIY I think we pretty much represented the market. And that was more representative of the cars declining as far as the miles driven. So it reflected in those numbers for the quarter. We probably only have time for about two more questions.

Your next question comes from Laurence Alexander – Jefferies & Co. Laurence Alexander – Jefferies & Co.: Lamar, what do you see as the tax rate running forward for the combined business? And have you outlined the compensation investment implication and how that affected the tax rate this year?

Sure. One thing we have said in the past on these calls is we’ve found it challenging to project tax rates accurately, but as far as the long range expectation I think you ought to think in terms of Ashland and Hercules combined with a tax rate in the high 20s to low 30% range. We closed 2008 with an effective tax rate of 33%, which is higher than we would expect even for just the Ashland component going forward by a couple of percentage points. The reference we made to the market value impact on that, certain of our benefit plans if you will or internal plans, one of which relates to a [Rabbi] Trust has a funding underneath it tied to the market, equities and fixed investments, and as the market went down we take a P&L charge for the client and the value of those instruments. We get no tax deduction for that structured under cash value life insurance program, so it was really a pre-tax effect that had no tax benefit that we were referencing there.

Your next question comes from [Steven Velgard] – FIG. Steven Velgard – FIG: I had a question about to the extent that you can talk about the negotiations with the banks. Now that both Ashland and Hercules have reported the quarter, is this concerning rates going forward based on your quarterly EBITDA or could you just give us a better idea? I know that there were certain commitments in place regarding the flex schedule, but I’m not sure now that you’ve reported what’s left really in the negotiation?

I said nothing that we’ve reported “we are Hercules” in terms of our earnings for this September quarter has any direct implications to the commitments or the flex. There’s been no implications off of earnings or EBITDA’s that would change the financing picture whatsoever. Steven Velgard – FIG: The interest income in the quarter was only $2 million. Was there some sort of charge in there? Or why was the interest income so low given your cash balances and I know that there’s perhaps an issue with the student loans. But what – why is that so low in the quarter?

Within that interest line, there’s some netting of some interest expense that flows through on a little bit of debt obligation we have, as you can see on our balance sheet it is a small amount. But the interest rates on the securities we invest in, the short term instruments has declined significantly. So that’s really the affect you’re seeing in the change in our interest portfolio. Steven Velgard – FIG: I mean, less than one percent kind of annualized. Is that correct?

Just on the investments piece we’re looking slightly at in excess of 2% on average for the quarter for the short term overnight type investments. We have with us in the room here today Kevin Willis, our treasurer. Kevin, do you have any added perspective on that?

Sure. As Lamar indicated, the amount of interest income that we earn on our portfolio is on a weighted average basis is just in excess of 2% probably for the quarter. In addition some interest expense going through that part of the P&L there are also some other financial costs, if you will, that tend to get captured in that area and those would also net against the interest income number.

Well we want to thank everyone for your participation on the call and we look forward to talking with you soon. Thank you very much.

Thank you for joining today’s conference. That concludes your presentation. You may now disconnect and have a wonderful day.